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>From The Confiscation of American Prosperity While the relative size of the financial sector has ballooned, the manufacturing sector has shrunk. For example, the share of manufacturing represented 21.2 percent of the Gross Domestic Product in 1974; by 2004, that figure had fallen to 12.1 percent. In contrast, the Finance, Insurance, and Real Estate sector rose during the same period from 14.9 percent to 20.6 percent, effectively trading places with the manufacturing sector (President of the United States 2006, Table B-12, pp. 296-97). However, the data fail to reflect the full extent of the shift from manufacturing to finance because non-financial companies often earn substantial profits from financial operations, without reporting separate information for their financial operations. The magnitudes in question can be substantial. For example by 2005, General Motors and Ford earned almost all of their profits from their financial operations rather than from producing cars. For General Electric, financial operations produced almost half of the company's profit (Henry 2005). While financialization is not as extreme for the entire corporate sector, by one estimate, financial profits as a share of total profits rose from around 15 percent during the 1960s to above 30 percent for most of the 1980s-90s (Epstein and Power 2002). Using a different method, the Department of Commerce estimated that by early 2005 financial profits represented more than one third of all corporate profits, up from little more than 20 percent a decade earlier continues to climb (US Department of Commerce, Bureau of Economic Analysis 2005; Henry 2005). Both these breakdowns necessarily underestimate financial profits because many corporations do not separate their financial from their non-financial profits. As manufacturing continues to move abroad, the relative importance of financial profits will most likely continue its steady increase, at least until the coming depression. The probable consequences will not be pleasant. New Enrons are growing at this very minute. They always do. Although the financial industry lobbies hard against regulation, effective regulation can limit the number and the size of future Enrons. In a healthy economy, the collapse of a few speculative ventures does relatively little harm. In a vulnerable economy, the size of the suddenly disappearing bezzle can set off a depression with a magnitude many thousands of times greater than Enron. > > For all those radical political economists who thought the FROP was > empirically and analytically dead--except those braves TSSI theorists who > disproved what I call the Okishio "Impossibility Theorem" that viable > technical change can never depress the profit rate--let's not forget what > Akerlof and Shiller say: " > Most people have trouble thinking about broader feedbacks. For them the > rise in real earnings that accompanies a stock market boom (as for example > in the 1990s) is 'proof' that the boom is rational. They rarely consider > the possibility that the earnings rise is just another temporary > manifestation of the stock market rise." p. 136 > > -- Michael Perelman Economics Department California State University Chico, CA 95929 Tel. 530-898-5321 E-Mail michael at ecst.csuchico.edu michaelperelman.wordpress.com ________________________________________________ Send list submissions to: [email protected] Set your options at: http://lists.econ.utah.edu/mailman/options/marxism/archive%40mail-archive.com
